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Good news! Renewable energy systems just got a little more affordable. Thanks to federal tax credits that will go into effect in January 2009, U.S. homeowners can get money back if they purchase wind turbines or solar panels next year. There are tax credits for energy efficiency, too — including projects such as adding more insulation to your home, or buying energy-efficient windows.

All this is good news for the planet, because it encourages renewable energy and reduces the use of polluting fossil fuels. It’s also good news for your wallet, because over time, these types of energy upgrades can save you a lot of money.

How do the savings add up?

Whether you’re buying a wind turbine or new windows, most home energy upgrades require spending money now to save money later through reduced energy bills. Some of these projects are big investments, costing thousands or even tens of thousands of dollars.

How it all pencils out will depend on the details of your project, but with the new federal tax credits you can count on getting some money back quickly. The tax credits for energy efficiency cover up to 10 percent of many home improvements, up to a total of about $500. Even better, the new tax credits cover 30 percent of the cost of most new renewable energy systems — which can add up to thousands of dollars. For example, the maximum tax credit for installing a wind turbine is $4,000.

(Ed. Note:The economic stimulus bill passed in February of 2009 made some of these credits even better. The increased credits cover 30 percent of the cost of energy efficiency improvements, up to a total of $1,500. Read more details here.)

Does any of this sound familiar?

No, it’s not déjà vu — you probably have heard all of this before. A similar group of tax credits went into effect in 2006. (You can read our earlier articles about those tax credits here and here.) But most homeowner incentives for energy efficiency expired at the end of 2007, and the tax credits for installing solar energy systems were due to expire at the end of 2008.

Then in October, these new tax credits passed as part of the economic bailout package. So now the tax credits for efficiency are back, the solar tax credits have been extended, and in a few cases, these incentives have been expanded. They all go into effect Jan. 1, 2009.

What exactly is covered?

For a more complete summary of the new energy incentives, this list of tax credits on the Energy Star Web site is a good place to start. It has more details, and even links to the tax forms you’ll need. But here’s a general idea of what’s included:

You can get a total of $500 per taxpayer for making home improvements to increase energy efficiency. Improvements that qualify include installing new windows, additional insulation, and more energy-efficient water heaters and furnaces. (Ed. Note: in February of 2009, this amount was increased to $1,500.)

The tax credits for installing solar panels were extended. That means home solar-electric systems qualify for tax credits, as do solar water heaters. Both qualify for 30 percent of the cost of the project. (Solar water heating is capped at a $2,000 credit; solar-electric systems are not capped.)

Now more types of renewable energy systems qualify for tax credits, including wind turbines (up to $4,000). Tax credits are also available for home fuel cells (30 percent of system costs), geothermal heat pumps (up to $2,000), and biomass stoves, such as woodstoves or pellet stoves ($300).

There's a new tax credit for plug-in hybrids ($2,500 to $7,500) although it gets phased out as more models of these cars are sold. Also, an earlier tax credit for gasoline-electric hybrids is still in effect. Toyota and Honda vehicles no longer qualify because of the number of those models that have been sold, but tax credits are still available for Ford, GM and Nissan hybrid vehicles.

So what else do I need to know?

Before you invest in any of these projects you'll want to read all the fine print. Many of these projects have restrictions, for example, eligible replacement windows must be Energy Star rated.

Finally, don’t despair if you look at the numbers and decide you don’t have the money to invest in energy improvements right now. There are lots of different ways to lower your energy bills including inexpensive and DIY options. A good place to start is this article from Gary Reysa, Eight Easy Projects for Instant Energy Savings.

Have you taken advantage of tax credits for energy improvements? Will you consider doing so with the new tax credits? Share your thoughts by leaving a comment below.

Megan E. Phelpsis a freelance writer based in Kansas. She enjoys reading and writing about all things related to sustainable living including homesteading skills, green building and renewable energy. You can find her on Google+.

Patricia; those tax cuts were put in place by the Republicans in Congress and signed into law by GWB. They were ended by your buddies the Democrats. Presidents DO NOT fund anything they just say yes or no to what Congress funds or does not fund. Congress controls controls taxes not Presidents. Learn about the Constitution and get a clue.
blainenay; you are wrong as well! Congress should fund solar and wind etc. This must be done for strategic reasons. In addition congress needs to force thru measures to accelerate the building of modern nuke plants that us thorium for fuel. They can't melt down and to totally safe. I do admire your libertarian/conservative views but this country must control it's energy supplies by whatever means we have to use.

timfoutz

3/30/2009 8:04:11 AM

Patricia; those tax cuts were put in place by the Republicans in Congress and signed into law by GWB. They were ended by your buddies the Democrats. Presidents DO NOT fund anything they just say yes or no to what Congress funds or does not fund. Congress controls controls taxes not Presidents. Learn about the Constitution and get a clue.
blainenay; you are wrong as well! Congress should fund solar and wind etc. This must be done for strategic reasons. In addition congress needs to force thru measures to accelerate the building of modern nuke plants that us thorium for fuel. They can't melt down and to totally safe. I do admire your libertarian/conservative views but this country must control it's energy supplies by whatever means we have to use.

Patricia George_4

3/6/2009 10:33:45 AM

Last year, we invested in lots of things to make our home more energy efficient. We had solar reflecting film on all our windows. We added extra insulation under the new roof. The metal roof we chose had an energy efficiency rating for reflectivity which is important here in the extreme Arizona summer heat. We installed solar panels connected to the grid as an important step in reducing our carbon footprint and reducing our dependence on foreign oil. We downloaded the Energy Star tax credit forms on the window film, insulation, and metal roof with the efficiency rating so we could apply them for tax credits on our 2008 tax return. We received the huge rebate from Arizona Public Service that almost reduced our cost in half on the solar panels. We received the Federal and State income tax credits on the solar panels also. But, George W. Bush, in his infinite kindness and wisdom...choke, barf, gag.....declined to renew the credits for storm windows, doors, anything energy efficiency attempts for taxpayers for the tax year 2008. It will apply in 2009, but not for the year 2008 in which many folks like us spent lots of money to become more energy efficient. So, while the solar panels were included in tax credits, any other attempt was a slap in the face by this dictator. Oh, and solar water heaters were included in the credits, but we spent all we could afford and did not invest in them.
Buyer beware. We thought we were going to get the credits that should have been renewed by the departed idiot in the White House, but we were wrong. We are not sorry we did not wait until 2009, but we had to walk the walk to become more Green. Hope this did not hurt other folks trying to do what was right.

namaste_1

12/1/2008 11:07:04 AM

blainenay-
Look deeper into your argument- Is the coal, nuclear, and gas industry subsidized? Absolutely. Do these industries create toxic pollution from the byproducts of manufacturing? Absolutely. Are they a finite resource- yes. Is the wind or sun a finite resource- as far as we know, no. If you truly believe in a free market, take away ALL the subsidies and let them all compete. I guarantee renewable energy would wipe out the fossil fuel industry. I agree with you on ethanol- have not supported it from the beginning. Status quo is no longer an option.

namaste_1

12/1/2008 11:05:44 AM

blainenay-
Look deeper into your argument- Is the coal, nuclear, and gas industry subsidized? Absolutely. Do these industries create toxic pollution from the byproducts of manufacturing? Absolutely. Are they a finite resource- yes. Is the wind or sun a finite resource- as far as we know, no. If you truly believe in a free market, take away ALL the subsidies and let them all compete. I guarantee renewable energy would wipe out the fossil fuel industry. I agree with you on ethanol- have not supported it from the beginning. Status quo is no longer an option.

blainenay

11/29/2008 6:48:43 PM

This idea that one can save energy by using tax credits is a scam perpetrated on the taxpayer. I acknowledge the fact that sometimes alternative energy is necessary, such as a home or cabin located miles from the nearest power line. Other than that, most, if not all, alternative forms of energy (solar, wind, ethanol, etc) require significant taxpayer subsidies to be viable. The notion that these subsidies are free money is naive and selfish. Somebody else had to work (ie give up his personal time) to produce the funds to subsidize that solar panel on your roof and that hybrid car in your garage. Most forms of alternative energy, in addition to being a burden on the taxpayer, simply displace the resulting pollution to somewhere else. For example, the chemical processes necessary to create your "clean" solar energy result in considerable waste that is extremely toxic. Without subsidies, alternative-energy sources cannot pay for themselves within their expected life time. Some alternative energy sources (ie ethanol which needs more energy to produce than it produces) are simply wasteful. I oppose taxpayer-funded subsidies for all so-called alternative sources of energy as well as other products that require subsidies to be commercially viable (ie that hybrid or electric car that lugs around a ton of batteries that will become expensive-to-replace toxic waste in a very few years). I am unalterably opposed to politicians using my tax money to support these marketplace failures! Congress must take immediate and aggressive steps to eliminate subsidies and mandates for all technologies that are not viable in a free market. And, of course, if a technology is viable in a free market, it needs no subsidies nor mandates.

Delphine Williamson

11/28/2008 10:26:25 PM

Loop-hole per the Energy Star site: Tax credits for these residential products, which had expired at the end of 2007, will now be available for improvements made during 2009. However, improvements made during 2008 are not eligible for a tax credit.

bgammababa@q.com

11/28/2008 1:14:11 PM

I am retired and living on Social Security. I am receiving a HUD loan to install new windows, an on-demand water heater and I had hoped to install solar since my heating is electric baseboard. I will not receive a tax rebate on any of these energy saving items because I do not pay any taxes at my income level. Since I will receive no help, I will have to forego the solar and just pray that my bill does not exceed my fixed income some day. This applies to non-profits as well so the poor will be unable to conserve energy. There has to be a better way than tax rebates for the government to encourage the greening of America. I have checked with many government agencies and there are no programs to help me.

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